Westports Malaysia Sdn Bhd - 2009

MARC has affirmed the AA+IS rating of port operator Westports Malaysia Sdn Bhd’s (Westports) RM800.0 million Sukuk Musyarakah Medium Term Notes (Sukuk Musyarakah MTN) and maintained the stable rating outlook. The affirmed rating considers Westports’ strong competitive position and operational track record in addition to its stable financial profile and ample financial flexibility. These positives are tempered by the port’s cyclical exposure, the strong negative effect of the global economic downturn on container volumes as witnessed in recent periods and exposure to concentration risk from key shipping majors. The stable rating outlook reflects expectations that Westports’ credit metrics will remain satisfactory for the rating level with a sustained rebound in container volumes. Westports’ demand-driven capital spending and strong liquidity position lessens downside ratings risk.

Westports is a private port operator in Port Klang, the main gateway for the industrialised hub of Klang Valley. The Malaysian federal government holds one special share in Westports via the Ministry of Finance Incorporated and an indirect 8.55% stake through Khanazah Nasional Berhad, which seemingly implies the essential infrastructure nature of Westports’ operations. Other significant shareholders in the holding company are transnational port operator Hutchison Port Holdings Ltd (HPH) via South Port Investment Holdings Ltd (31.45%) and private infrastructure operator Pembinaan Redzai Sdn Bhd (42.90%). One of the world's leading port operators, HPH manages more than 300 berths in some 50 ports spanning 25 countries around the globe and has been transferring proven operational practices to Westports. Westports continues to maintain productivity at “Fastport” standards of average 35 moves per-hour-per-crane-per-ship, and is recognised among the top five productive ports in the world. Westports is well positioned for continued prominence as a major loading centre for Southeast Asia with the increase in its container handling capacity from 5.0 million twenty-foot equivalent units (TEU) to 7.0 million TEU following the completion of new container terminal CT5, which was fully operational in August 2008.

For the nine months ended September 30, 2009 (9M2009), Westports handled 3.2 million TEU of shipping containers. This was a fall of 14.8% compared to the same period in the previous year. The port registered  4.5 million TEU  throughput  in the full year of 2009, a  decline of 10.2% from its high of nearly 5 million TEU in 2008 and 17.4% lower than earlier projected TEU of 5.4 million for 2009. On a quarter-on-quarter basis, however, container volume has been showing signs of rebound since the second quarter of 2009, averaging 360,000 TEU a month in the second quarter of 2009 and 400,000 TEU in the third quarter. MARC views positively the upward movement in the leading indicators of major Asian economies, particularly their export volumes, and the corresponding implications for near-term growth in regional trade and container volumes. The trend of increased customer concentration which Westports, in common with most ports, are experiencing has contributed to higher exposure to the credit risk of a major customer. Currently, Westports has more than 20 regular customers, of which its largest customer contributes 45% of total throughput and 24% of revenues. Westports continues to be exposed to the weakening credit profiles of its liner shipping customers.

In 2009, Westports recorded RM833.2 million in revenue and pre-tax profit of RM297.1 million. Compared to 2008, Westports’ revenues were down by 15.3%, mainly due to lower-than-expected container throughput volumes. During the period under review, the container segment contributed 79.7% to total revenue while conventional cargo, marine activities and rental of facilities contributed the remainder. Westports’ operating profit margin declined to 38% in 2009 from 40% in 2008, on account of higher direct manpower cost and annual lease. Westports’ OPBITDA interest coverage ratio was lower at 17.71 times (x) from 18.49x in 2008 but remains strong. Westports’ debt-to-equity ratio has improved, with the recent increase in share capital and meaningful earnings retention to 0.43x in 2009 (end FY2008: 0.53x). Westports reported cash balances of RM173.4 million as at December 31, 2009. Liquidity is also supported by unutilised working capital lines of RM93.0 million and the undrawn RM355.0 million balance of its Sukuk Musyarakah MTN facility.

Westports’ earnings and cash flow generation could be negatively affected by a more unstable macroeconomic environment and/or the deterioration in the financial viability of major customers. The aforementioned factors could put Westports’ rating under pressure.

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